samedi 11 juin 2011

The money is not the value - or Bitcoin as the first non-aristotelian currency

Bitcoin detractors arguing that it has no intrinsical value because it is not backed by physical assets are just making fools of themselves by wallowing complacently in the most well know  fallacy ever: mistaking the map for the territory.

It seems that some people still did not notice after tens of years of life that their true nature is not that of being mere primates seeking for food and shiny stones in a post-industrial physical scenery, but that of being  informational entities, minds, endowed with the limitless powers of consciousness, imagination and free will.

Let's face it, the world is nothing but a complex pack of self-organizing fractal stuff that we happened to be plugged into when we were born, and that we had to learn to deal with in order to communicate with other minds stuck in the same treacle. Whatever ways we have found to communicate through the physical world are just that :  vehicules for higher level abstractions. Language and symbols are vehicules for meaning, art is a vehicule for imagination, technology is a vehicule for evolution, religion is a vehicule for faith, and money is a vehicule for value.

But let's keep in mind that vehicules of abstractions are not the abstractions they convey, they are just proxies we are using because we have to pass information across the physical world, and we should value them for what they are: information carriers. As the map is not the territory, the body is not the mind that drives it, words are not the meaning they convey, art is not the creative vision it expresses, technology is just a path to evolution, and money is just a proxy for value.

We are nowhere close to breaking free from our physical jail, but every step that allows us to be less reliant on the physical world is a step forward toward freedom. And Bitcoin has all the appearances of enabling such a step forward, no matter what the aristotelian minds have to say.

True value, and the ownership of value, only exist in and between the minds as a consensus that does not depend on the underlying medium that is used to convey it. You own your home only because the society recognizes that you own your home. Should a new order arise that denies your rights, you would just end up not owning your home after all, and no physical charm will help.

In that sense, bitcoin is the closest thing that ever existed to the perfect consensual medium of exchange : it allows low overhead transfer of value between stake holders, and it's very existence is tied to a continuous and global concensus between technological agents that directly and faithfully represent their owner's will. Should the consensus loosen, and the whole system will reshape instantly to fit the new order, destroying value or reassigning ownership . But that will happen only if the majority of the network decides that it must be so, in which case it would make sense that it be so. While this may be frightening, this reflects objectively the fact that value is not a static and absolute measure.

In retrospect, it is the fiat-currencies that are the bogus medium of exchange. In addition to their practical shortcomings like high communication overhead or lack of built-in security, the fact they are single handedly managed by central banks and governments with their own agenda make them totally non-consensual. The consensus takes place in the real economy and the markets, and central banks are permanently lagging behind in reactive mode, trying to keep money supply in sync with their over simplified estimation of value. The result is very mitigated, and entails a variety of undesirable side effects like inflation / deflation cycles, credit contraction or excessive lending, which in turn affect the real economy, justifying the need for further adjustement by the central banks. Add to that the fact that each country has its own currency and monetary policy and you get a combinatorial explosion that makes it impractical to understand, let alone anticipate, subsequent evolutions of the world economy.

Now, replace all the inconsistent local currencies and monetary polices by Bitcoin and its absence of monetary policy, and you cut short all possibility of blind adjustement at the state level, exchange rate manipulation to protect local markets, or money printing to make up for excessive public spending. This will force governments to act responsibly and adjust their expenses to their budget, and not the other way round. If the money supply doesn't move, then the price of goods will move locally to adapt to the money supply, creating important price differences between countries, that will in turn favor international trade  until the prices are even everywhere.

This would likely create a real mess worldwide during tens of years, with massively negative trade balance for rich countries, and an unexpected cash flow for the third world. Eventually, power will rebalance, and we will end up with a more fair world (in any case, I doubt seriousluy it could be more worse than now).